IN DEPTH: Texas PV – the fastest draw in the west

Since
Recharge wrote last year about Texas becoming the next big thing in solar
power, the state’s PV industry has grown at a far faster pace than anyone had predicted.

Ercot, which operates 90% of the Texas grid, predicts that
cumulative PV capacity will jump from 290MW to 1GW this year within its service
territory, before a surge of activity over the following 15 years.

In June, it updated its forecasts for solar installations,
predicting 14.5-28.1GW by 2031; only last October it was expecting 10.1-14.1GW
by 2030. In all eight of Ercot’s forecast scenarios, PV emerged as the cheapest
source of utility-scale electricity by 2031.

Although the deeply Republican state has few incentives for
renewable energy, the cost of solar energy in Texas has fallen so far that it
is now cheaper than new combined-cycle gas plants. Insolation levels are among
the best in the country, while the solar power curve closely matches the demand
curve for much of the year — consumers tend to turn up their air-conditioning
when the sun is blazing.

Texas also has low taxes and little red tape, not to mention a
host of recently built high-voltage transmission lines (erected to service the
growing wind sector). Also, the costs of labour, material and services are
below the national average, further reducing the levelised cost of energy.

Industry leaders such as First Solar, Hanwha Q Cells, Recurrent
Energy and RES Americas have been busy building, developing or scouting
locations for projects, leasing land and sealing tax-abatement deals with local
officials across West Texas.

A unit of utility giant Southern Power has bought hundreds of
megawatts of PV projects in the state, while New York’s ConEdison owns two
large Texas PV projects and is working on five more, including a 200MW facility
with municipal utility Austin Energy.

“It’s no longer a question of, ‘we’re environmentally superior,
quieter, shinier’, or something like that. It’s come down to ‘can we compete on
price?’” says Randy Jenks, director of commercial development at San
Antonio-based developer OCI Solar Power.

Last October, Austin Energy contracted 288MW of PV for under
$40/MWh. In 2009, it had paid $165/MWh for power from a 34MW plant. Few
contracts signed since have disclosed their energy prices, but they are thought
to be among the lowest in the country.

Luminant, the largest power generator and miner of lignite coal
in Texas, is buying 116MW of solar in a long-term deal with SunEdison (which is
going ahead regardless of the latter’s bankruptcy).

“It’s
historic in that Luminant, which primarily generates its energy from coal, is
buying the energy from a solar project because the solar power is actually
competitive with other energy sources,” Luminant chief executive Mac McFarland
told the Dallas Morning News.

“Solar energy was previously viewed as being an expensive
alternative to fossil fuels. Those days are ancient history.”

Annise Parker, the former mayor of oil city Houston, which is
buying 30MW of solar under a 20-year power-purchase agreement (PPA), said:
“What I’ve discovered is that, almost every time, doing the right thing
environmentally is also the right thing to do financially.”

Yet on a per-MWh basis, utility-scale solar still costs 15-20%
more than both wind power ($21-28/MWh) and natural gas ($22-24/MWh), but is
cheaper than the latest combined-cycle technology.

Although gas prices have almost doubled since the record lows
seen in March, it is likely they will remain low enough for gas to remain the
state’s dominant baseload fuel for at least the next two decades, according to
Jenks.

But at the same time, signing long-term solar PPAs at set prices acts as a hedge against future fossil-fuel price volatility. As the cost of solar falls, and the price of gas rises, the Texas PV sector is expected to grow at the expense of new natural-gas capacity while replacing ageing coal power stations — which are expected to be hit by higher costs and a tougher regulatory environment under a potential Hillary Clinton presidency.

As much as 60% of the state’s 12GW coal fleet could be shuttered
by 2022, according to Massachusetts-based Brattle consultancy group.

But even the competition is finding value in solar. Wind farm
owners are increasingly looking to install PV capacity on land they already
lease, utilising existing substations and transmission lines and to improve
overall asset economics.

Solar projects have also begun competing in the liquid short-term
Ercot market, where the industry and wholesale market players are collaborating
to innovate with new, longer-term products. Demand is already starting to surge
from the commercial and industrial market, and traditional generators are
wanting to offer renewable electricity to greener-minded cities.

“This is a kind of revolutionary time in the solar industry
here,” says Raina Hornaday, general manager of Austin-based developer Caprock
Renewables. “[It’s] very similar to where wind was a dozen years ago.”

Texas
solar deals in 2016

Southern Power has bought two large projects — the 102MW Lamesa
and 120MW East Pecos from RES Americas and First Solar respectively — as well
as a 51% stake in Recurrent Energy’s 212MW Roserock project. All three
facilities have power-purchase agreements (PPAs) with municipal utilities.

Luminant, the largest power generator and miner of lignite coal
in Texas, has agreed to buy 116MW from SunEdison’s Castle Gap solar farm in
Upton County under a long-term PPA. Hanwha Q Cells USA has signed a
25-year PPA with municipal utility Austin Energy for an unnamed 170MW PV
project in Pecos County.

Apex Clean Energy signed a 28-year PPA with the US Army for a
15.4MW PV facility at the Fort Hood garrison in the city of Killeen, along with
50.4MW of wind from a facility about 300 miles (480km) away.

Hecate Energy sealed a 20-year PPA with the city of Houston for
30MW at $48/MWh, far lower than the average $67/MWh the city has paid for
conventional energy over the past five years.

OCI Solar Power will sell power from its under-construction 50MW
Pearl project in Pecos County to San Antonio municipal utility CPS Energy. The
project will use inverters, modules and single-axis tracker systems made in
Texas.